Greece and Austerity Policies: Where Next for its Economy and Society? A conference from the WEA20th October to 21st December 2014

Background

Since the onset of the public debt crisis in Greece, the term ‘austerity’ rather than ‘fiscal contraction’, has prevailed in economic and socio-political jargon. The fact that in 2010 it was the most looked up-word online indicates both its spreading use and its opacity. The current use of the term is subject to certain theoretical fallacies, while it carries particular ideological undertones.

More specifically, according to Robert Skidelsky, public debt ‘fetichism’ contains five theoretical fallacies. Namely, it overlooks the fact that a. governments have “monetary sovereignty’; b. reducing the public deficit shrinks the economy; c. public debt is the transfer of wealth from taxpayers to bond holders, not a net burden; d. there is no connection between the size of public debt and the price a government must pay to finance it; e. low borrowing costs for governments do not necessarily reduce the cost of capital for the private sector.

Furthermore, empirically, there is no evidence of a threshold beyond which public debt impedes growth. The so-called ‘90 per cent rule’, coined by EU Commissioner Olli Rehn, on the basis of the work by economic historians Carmen Reinhart & Kenneth Rogoff, has been shown to be more of a fiction than a fact.

Hence, the post-crisis fixation with austerity is best understood as an attempt by the financial industry to shift public discourse from the need for radical changes in the financial sector to the ‘living-beyond-one’s means’ narrative in order to secure more bail-outs for the banks and deflect pressures for financial policy reform. In any case, proposing one and single strategy of austerity policies as the only possible “rescue plan” for all troubled economies around the globe (EU- Latin America and Asia) overlooks the complexity of the socio-economic reality and causes serious and systemic turbulences.

Greece joined the Eurozone in 2001. By that time, its financial sector was already highly deregulated. Before the onset of the current crisis the Greek economy experienced high economic growth. However, this was accompanied by a rise in the twin deficits, that of the public sector and of the current account, resulting in an increase in both the public and private debt that rendered the Greek economy extremely vulnerable to potential macroeconomic and financial shocks. This was especially the case in view of the architecture of the single currency, rendering the euro a ‘hard currency’ for the Eurozone member states.

Greece did not have a financial crisis per se. However, by 2009 the effects of the economic crisis became evident, as GDP declined while public finances worsened. The restrictions of the Eurozone meant that the economic crisis soon turned into a sovereign debt crisis. At that point, the ‘Troika’ (European Commission, European Central Bank, International Monetary Fund) moved in by offering a rescue plan that was based on the implementation of austerity policies, which did not include only fiscal contraction measures. They also comprised wage austerity, labour market deregulation and widespread privatisation.

Four years after the implementation of the austerity policies, the declared targets of the austerity programme have not been achieved: the economy is in a recession which is deeper than that of the USA in the 1930s; the unsustainability of the public debt has been made worse; the fiscal deficit has been reduced at a much slower pace than expected; the current account deficit has declined mainly through the fall in imports as a consequence of lower incomes; the financial system remains extremely fragile; and the unemployment rate has more than trebled. Moreover, Greece has experienced higher poverty rates, increasing inequality, and many other adverse economic, social and political developments, including the emergence of a neo-Nazi political party.

The failure of the austerity policies in Greece calls for radically different approaches to the Greek crisis and for the implementation of alternatives to austerity policies. Otherwise, the possibility of a prolonged period of economic, social and political instability in Greece is extremely high. The implications of such instability for the European Union, indeed for Europe more generally, should not be underestimated. The lessons of the Greek case are of a more general applicability particularly because austerity policies are now applied in many countries in Europe and beyond. These are the reasons which led to the organization of the present conference.

The call for papers

The conference focuses on the policies and politics of austerity and on the various aspects of the Greek crisis. Papers dealing with similar experiences in other countries that may bring light on the effects of austerity policies in Greece would also have be considered.
In particular, the conference was is structured into three parts:

Part 1: Greece on the eve of the financial crisis – Challenges and opportunities

The Greek economy: regional development, de-industrialisation, research and innovation, banking sector, shipping, current account deficit, fragile growth, functional and personal income distribution; the role of transnational companies in the Greek economy.

Public finances and the role of the state: tax system, welfare system, education, health care, public debt, ‘Greek statistics’.

The Greek society: institutions, politics, group interests and social actors, social inequalities and social mobility, emigration, immigration.

Papers falling within the broad topic of the conference though on aspects not explicitly noted above were also welcomed. We welcomed contributions from economists, economic historians, sociologists and political scientists.